Government

Geithner To World: Spend Now. Cut Deficits Later.

There's this big debate in both the U.S. and Europe right now: cutting government spending to reduce deficits versus continuing to spend heavily to promote economic growth.

Europe has been moving to lower deficits. The Obama administration is pushing for spending, at least in the short term.

Ministers from the G-20 — the world's 20 largest economies — are meeting in Toronto this weekend, and hashing out this question is at the top of their to-do list.

Tim Geithner and Larry Summers land on the WSJ op-ed page this morning, outlining the U.S. agenda for the G-20. They argue for more spending:

We must demonstrate a commitment to reducing long-term deficits, but not at the price of short-term growth. Without growth now, deficits will rise further and undermine future growth.

Of course, more spending requires more borrowing. Bond investors are still willing to lend money to the U.S. and German governments at very, very low interest rates. But investors have been demanding higher interest rates to lend to countries on the periphery of Europe.

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